2015 (1) TMI 634 - AT - Central Excise

Clandestine removal of goods - Shortage of goods found - it is contended that merely on the basis of their statements and the statement of the proprietors of certain transport companies duty liability cannot be fasten on to the appellant company - Held that - Goods covered under these GRs had been loaded from the factory of the appellant company and this is based on the statements of the transporters as well as the statements of Shri. Kulbhushan Jain, a person who is alleged to have been a confidential employee of the appellant company and Shri Subhash Agarwal of M/s. VK Steels, a dealer. The appellant had sought cross-examination of the transporters as well as of Shri Subhash Aggarwal and Shri Kulbhushan Jain, but the same was not allowed, even though Shri Kulbhushan Jain had retracted his statement. In terms of Section 9D (1) of Central Excise Act, 1994, a statement made and signed by a person before a central excise officer of a gazetted rank during the course of any enquiry or proceedings under this Act, shall be relevant for the purpose of proving in any prosecution for an offence under this Act, the truth of the facts which it contains, when the person who made this statement is examined as a witness in the case before the court and the court is of the opinion that having regard to the circumstance of the case, the statement should be admitted in the interests of justice. The only situation in which the statement of the person can be accepted by the court without his examination is when the person, who made the statement is dead or cannot be found or incapable of giving evidence or is kept out of the way by the adverse party or whose presence cannot be obtained without an amount of delay or expense, which under the circumstances, the court considers unreasonable. - Since in this case, the cross-examination of Shri Kulbhushan Jain and Shri Subhash Agarwal and also of the proprietors of the transport companies, whose statement have been relied upon was not allowed, the impugned order confirming duty demand based on their statement would not be sustainable. Moreover, other than the statements of Shri Kulbhushan Jain and Shri Subhash Agarwal and the proprietors of the transport companies, there is no other evidence linking the GRs issued by M/s. Pehalwan Transport and M/s. New Pooja Transport with the appellant company. Therefore, I hold that the impugned order upholding the confirmation of duty demand of ₹ 8,35,865/- based on 38 GRs issued by transport companies and one GR issued by New Pooja Transport is not sustainable and has to be set aside. GRs can not be linked to appellant company and the duty demand based on the same cannot be confirmed. - Commissioner (Appeals) has dropped the demand on the ground that the appellant company had produced invoices showing the payment of duty and the particulars of the invoices, the names of the consignees and the consignors, the quantity transported, vehicle number etc. tally with these particulars in the GRs. I am, therefore, of the view that the ground on which the duty demand based on these GRs has been dropped is absolutely correct as such, there is no infirmity in the same. - Decided in favour of Assessee.

Summary

Issues Involved:
1. Alleged clandestine removal of MS Bars by M/s Premier Alloys Ltd. (PAL).
2. Shortage of MS Bars and MS Ingots during stock verification.
3. Recovery of Central Excise duty and Cenvat credit.
4. Imposition of penalties on PAL and its Director, Shri Ajay Kumar Jain.
5. Denial of cross-examination of key witnesses.
6. Validity of evidence based on transporters' goods receipts (GRs).

Detailed Analysis:

1. Alleged Clandestine Removal of MS Bars by PAL:
The Department alleged that PAL clandestinely removed MS Bars without payment of duty, using invoices from various traders. The investigation included searches at multiple premises, revealing shortages of MS Bars and MS Ingots. Statements from individuals like Shri Subhash Agarwal and Shri Kulbhushan Jain indicated that PAL used traders' invoices for such clearances. However, no incriminating documents were found at PAL's premises. The appellants argued that the case was based on assumptions and lacked direct evidence from PAL's premises.

2. Shortage of MS Bars and MS Ingots:
During a search on 15/07/02, a shortage of 146.24 MT of MS Bars and 67 MT of MS Ingots was found. The appellants contended that the shortages were not real and were determined using average weights rather than physical weighment. The adjudicating authority upheld the duty and Cenvat credit demands based on these shortages, as the stocktaking was conducted in the presence of PAL's employee, who did not dispute the method at the time.

3. Recovery of Central Excise Duty and Cenvat Credit:
The show cause notice demanded recovery of Rs. 3,09,535/- for the shortage of MS Bars and Rs. 1,04,542/- for the shortage of MS Ingots. Additionally, Rs. 21,62,449/- was demanded for alleged clandestine removals based on transporters' GRs. The Commissioner (Appeals) confirmed part of the duty demand but remanded and dropped other parts, leading to appeals from both PAL and the Department.

4. Imposition of Penalties:
Penalties were imposed on PAL under Section 11AC and on Shri Ajay Kumar Jain under Rule 26 of the Central Excise Rules, 2001. The Commissioner (Appeals) reduced these penalties, but both PAL and the Department appealed against the decision. The Tribunal found no evidence linking Shri Ajay Kumar Jain directly to the clandestine activities, leading to the setting aside of the penalty on him.

5. Denial of Cross-Examination:
The appellants requested cross-examination of key witnesses, including Shri Subhash Agarwal and Shri Kulbhushan Jain, whose statements were crucial to the Department's case. The denial of cross-examination was argued to be a violation of natural justice. The Tribunal agreed, citing legal precedents that support the necessity of cross-examination in such cases.

6. Validity of Evidence Based on Transporters' GRs:
The duty demand was partly based on GRs from various transporters. The Tribunal found that the GRs lacked sufficient details to link them conclusively to PAL. Additionally, the statements from transporters were not corroborated by other evidence. The Tribunal set aside the duty demand based on these GRs due to insufficient evidence and procedural lapses.

Conclusion:
The Tribunal upheld the duty and Cenvat credit demands related to the shortages of MS Bars and MS Ingots but set aside the demands based on transporters' GRs due to lack of evidence and denial of cross-examination. The penalty on Shri Ajay Kumar Jain was also set aside. The appeals by PAL were partly allowed, and the Revenue's appeal was dismissed.